Europe March benzene softening; styrene outlook unclear

28 February 2012 12:40[Source: ICIS news]

LONDON (ICIS)--With the European benzene market continuing to soften this week ahead of the March contract settlement, a reduction is expected, players said on Tuesday, following two months of sizable increases.

However, with another firm increase for March ethylene, the settlement at a record high €1,305/tonne ($1,740/tonne) free delivered (FD) northwest Europe (NWE), sources are unsure how the styrene barge contract negotiations will unfold.

Several traders expect that any styrene price movements will be minimal, and most are predicting a rollover.

“With benzene heading south, overall styrene costs are likely to remain similar,” said one styrene trader after learning about the €86/tonne increase for ethylene.

After settling at a US dollar concept of $1,283/tonne for February, the European benzene market has gradually edged downwards over the course of the month.

Deals for March delivery were so far this week in a range of $1,235–1,250/tonne CIF (cost, insurance & freight) ARA (Amsterdam-Rotterdam-Antwerp), the market easing off from previous highs as a bearish sentiment took hold.

“There is a bit of length in the benzene market right now,” said one trader. “It’s looking weak.”

Improved pyrolysis gasoline (pygas) availability due to firmer propane costs this month means there is ample feedstock for benzene production, which is keeping European supply levels up.

Softer demand from the phenol and cumene sectors, due to a raft of upcoming scheduled turnarounds, is also putting downward pressure on the benzene market.

Meanwhile, styrene prices have stabilised in February, regaining some of the margin with benzene that was lost earlier in the first quarter as benzene prices soared while styrene struggled to keep up amid sluggish demand.

With several styrene turnarounds on the horizon in Asia, there is an expectation among some European players that the domestic market could also tighten, as US imports are diverted east to cover the shortfall there.

“Both styrene and expandable polystyrene [EPS] margins are poor right now,” said one major European consumer. “If EPS can push up prices, then it can give some of that benefit to the monomer. I expect a hard fight for a decrease versus a rollover, with perhaps, in the end, a small increase if I see EPS prices still climbing.”

But the bearish sentiment upstream appears to be creeping into the styrene market this week. While March traded within a range of $1,500–1,530/tonne FOB (free on board) Rdam (Rotterdam) last week, deals have been reported as low as $1,480/tonne on Tuesday.

Additionally, there is talk in the market that up to 40,000 tonnes of material is headed to Europe from the Middle East, adding more downward pressure on pricing for next month.

“I think it is benzene pushing it down,” said one trader, “[but I] don’t see it falling off a cliff, though, as producers will have to cut rates if it gets too much lower and then buy in the market.”

($1 = €0.75)

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